I suppose they’re not actually going down right now, are they? In fact, in the past several weeks, we’ve watched gas prices sneak up on us a little bit. You can imagine my horror when it cost me $1.60 per gallon to fill up my tank instead of $1.35! Absolutely ludicrous!

Who am I kidding? As long as gas is under $2 per gallon, I’m happy as a clam.

There’s been a lot of talk about why gas prices are going down. Only just months before that, there was a lot of complaining about why gas prices were going up. Why the extremes?

It’s clear thatÂ gas prices are directly impacted by the laws of demand and supply, as is any product or commodity. So, of course, those laws play a big part in the price we pay at the pumps.

Why Are Gas Prices Going Down?

As I sat in my economics class today, my professor asked the same question- why are gas prices going down? Again, granted, in recent weeks they’ve crept up a bit, but they’re still substantially lower than they were only months previously.

So why?

Several students raised their hands guessing that maybe it was because we’re not buying as much gas, and because demand is dropping so is price. Is that typically true from an economic perspective? Absolutely yes! But really- are we consuming that much less so that price would drop to 1/3 of what is was? Doubtful.

Here’s the answer: oil speculation. There’s been a lot of talk that it wasn’t OPEC or any other factor driving oil prices up and down. This whole time it was Wall Street!

In order to really understand how the purchase of oil futures and speculation has impacted the price we pay, read article #2 done by “60 Minutes.” They do a really good job of taking something that can be fairly complicated and explaining it in a way that we all can understand.

What has everybody else heard about this. Any comments? Do you believe this?

4 Responses to “Why Are Gas Prices Going Down?”

The oil bubble might have been speculation but you really have to look at what they mean by that. There has been a trend to label some non-traditional investments as “Asset Classes.” Commodities is one. So is ForEx.

Speculators obviously has a negative connotation, but in reality not all of this money is being put into commodities by some guy on the street make $10MM a year. Some of the money comes from endowments and other retirement/pension funds. So I hate to see it painted in such a negative light.

Oil is obviously coming off due to de-leveraging and a weak economy. I don’t think supply/demand is not a factor yet. Try looking at what price of oil balances budgets of large oil producing nations. Around $35 to $55. That will be a good base for oil.

On a side note, you can hedge your own personal exposure to gasoline. If you like $2 then you can do something about it. Sites like Petrofix.com offer option type products that let people keep the savings when gas falls but protect them from rising prices.

@John: Great comments. And you’re right- it’s not like you’ve got a couple of high-rolling commodities guys running this whole thing up.

That said, honestly- what is it?! Is it a combination off speculation, supply & demand, as well a slowing economy. I can’t imagine there’s been enough demand cut or too much supply out that gas would fall like it did.

I haven’t drank the kool-aid yet! But I’m just looking for some answers.